My take on the Bernie Sanders plan to wipe out student loan debt

Will the Bernie Sanders plan to wipe out student debt crush the stock market?

Subscribe here, get The Compound delivered!

One of the signature achievements of the post-millennial capital markets is the driving down of investor costs to near zero, via Reg NMS which did away with the fraction spreads market makers once enjoyed and converted stock exchanges to a decimalized system.

While there have been winners and losers as a result of this and other improvements, no one would argue that the individual investor hasn’t become better off – more access, lower costs, increased liquidity. The concurrent shrinking of the average internal expense ratio at mutual funds and ETFs has been undeniably positive for the end investor trying to save for college, retirement, etc.

Democratic presidential candidate Bernie Sanders is now calling for a transactions tax on investors and traders that would represent a big step backwards for market participants, with the altruistic goal of wiping out the $1.6 trillion in student debt that many believe is holding back the economic potential of millions of young Americans.

Student debt, in the aggregate, has tripled since 2007 and has since surmounted car loans and credit card debt to become the number two liability for US households, after mortgage debt. Roughly 45 million Americans now carry some student debt, with the average balance being somewhere around $38,000 and the median somewhere between $10,000 and $25,000. Last year, 69% of current college students had some amount of student borrowing.

Shrinking it or cutting this number dramatically would be wonderful – but someone has to pay for it. A 50 basis point tax (.5%) on every buy and sell in the stock market could theoretically do that within a few years, but the consequences could be catastrophic. The Sanders plan would likely end up hurting the economy in the long run much more than it might help in the short term.

The vast majority of stock market participants aren’t “fat cats” or Wall Street speculators. They are savers and would-be retirees who would bear the costs of this plan, whether directly through their own trades or indirectly through their 529 plans, 401(k) accounts and IRAs.

Be sure to subscribe to our channel so you never miss an update

Follow us on Twitter

Check us out on Facebook

Talk to us about your portfolio or financial plan here

Standard disclaimer